International agency cuts forecast for crude demand

NoneMidland Reporter-Telegram

Published 7:00 pm, Saturday, May 21, 2011

By Matthew Saltmarsh

New York Times News Service

PARIS -- The International Energy Agency on Thursday cut its forecast for crude oil demand next year as a result of the recent surge in petroleum prices and weakening growth prospects for industrialized countries.

In its monthly report, the agency, an adviser to industrialized nations, trimmed its full-year 2011 global oil demand estimates to 89.2 million barrels a day, 190,000 fewer barrels than its previous estimate. That would still be 1.5 percent more than 87.9 million barrels in 2010.

The agency said it acted because of "persistent high prices" and weaker projections for advanced economies by the International Monetary Fund.

The IEA said several factors contributed to the uncertain economic outlook, including the effects of the Japanese earthquake in March, political and social unrest in several large countries in the Middle East, the recent surge in commodity prices, risks associated with current-account imbalances, and possible asset bubbles in large emerging economies.

At the same time, higher prices at fuel pumps in Europe and the United States are starting to reduce consumption, the agency said.

In the United States, gasoline prices rose to almost $4 a gallon in early May. In France, they have surpassed 1.50 euros a liter, or more than $8 a gallon. Higher prices in Europe reflect a heavier tax burden.

The report said if gasoline prices remained at current levels, demand would be weak in the United States as the summer driving season approached.

Demand for oil products in Europe sank 4.1 percent in March from a year earlier, the report said, because of weak demand for heating oil, resulting from higher seasonal temperatures, and falling demand for diesel, gasoline and other oil products.

The governments of Russia, Brazil and China face difficulties passing on recent price increases to consumers, the report said, which helps sustain robust demand growth in countries outside the Organization for Economic Cooperation and Development.

The agency said that apparent growth in Chinese oil demand accelerated slightly in March, reversing a slowdown observed in the previous two months.

China faces a "paradox," it said. Wholesale prices are too low to guarantee positive refining margins, but retail prices have increased enough to foster popular discontent. The authorities have increased prices three times since December.

Despite expectations that the Organization of the Petroleum Exporting Countries would increase output to replace supplies lost because of the uprising in Libya, the cartel's production is now running 1.3 million barrels a day below the level before the crisis, the International Energy Agency said.

OPEC representatives are scheduled to meet in Vienna on June 8 to discuss supply.